Billings can be reconciled to cost accounting records for both current and cumulative amounts. This requirement should be obvious but surprisingly, many contractors (and subcontractors) have been known to base their billings on something other than incurred costs. Also, some accounting software applications (such as QuickBooks) allow changes to prior periods with little or no documentation to explain the debits and credits. When that happens, cumulative costs will no longer reconcile with cumulative billings.
Subcontractor invoices are included only if payments are made in accordance with subcontract terms and conditions. The idea here is that contractors must develop and maintain procedures to ensure that subcontractor and vendor costs are only included in billings if payments to the subcontractor or vendor will be made in accordance with the terms and conditions of the subcontract or invoice and ordinarily within 30 days of the contractor's payment request to the Government. Auditors will often request Accounts Payable aging schedules to help with this analysis. Also, while the actual contract provision uses the term "ordinarily within 30 days", the Government tends to overlook the significance of the word "ordinarily" and hold out 30 days as firm.
Billings are consistent with contract terms. Sometimes contractors (and subcontractors) forget to consider the terms of the contract when preparing billings. It is imperative that contractors develop and maintain a robust contract briefing system. Amounts billed cannot exceed any contract, work order, funding ceiling, or any other contract ceiling amount. For example, almost every cost-reimbursement contract contains the provision at FAR 52.222-2, Payment for Overtime Premium. This provision limits the amount of overtime a contractor may charge to the contract. Usually, the amount is zero. Other provisions often overlooked include:
- Restrictions on billing frequency
- Special withholding provisions
- Contractual unallowable costs
Contractors that don't read their contracts are at risk for billing system deficiencies.
Click here for the concluding part in this brief series on billing system attributes.